Posted by: Schuyler R. Thorpe | August 27, 2011

Now That The Deal Is Done, Can Congress Swallow Its Own Medicine?

With debt deal reached, can Congress swallow its own bitter medicine?

If the definition of a compromise is something that most folks don’t like, then the $2.4 trillion debt-ceiling deal worked out over the weekend by President Barack Obama and GOP leaders in Congress is a resounding success.

As details of the framework began to leak early Sunday, the far wings of each party quickly rejected the compromise as capitulation. Democrats angrily noted that the plan was all spending cuts and no revenue increases. MoveOn.org, the liberal advocacy group, panned the deal and called on Congress to “pass a clean debt ceiling bill that doesn’t force the middle class and the poor to bear the brunt of this crisis.”

Conservatives, meanwhile, worried that the deal left open the door to revenue increases and could lead to steep defense cuts. “Republican Leaders are asking their members to accept tax increases or massive defense cuts and senior anger right before the election,” blogged Erick Erickson, editor of the conservative website RedState.com.

With the clock ticking and various congressional groups scheduled to meet on Monday morning to discuss the framework, the key question is whether the center can hold this deal together. Senate leaders certainly seem to think so, and a vote in the upper chamber is expected Monday afternoon.

The timing is key. Markets will be watching closely, and ever since the debacle of the first failed bank bailout vote in 2008 when the Dow plunged 778 points, lawmakers have been sensitive about when they hold economically perilous votes. But 11th hour action – the U.S. treasury has given Congress until midnight Tuesday before it says it will have to take drastic action to avoid a default – will force the House to act, leaving brazen conservative lawmakers no time to amend the bill and no choice but to pass it.

Convincing House Republicans will be a heavy lift. As President Obama announced Sunday night that “the leaders of both parties, in both chambers, have reached an agreement,” Boehner was telling his conference, “There’s no agreement until we’ve talked to you.” The embattled Speaker apologized to his members that the deal “is not ideal,” while trying to reassure them that “there is nothing in this framework that violates our principles.”

“It’s all spending cuts,” Boehner said. “The White House bid to raise taxes has been shut down.” Here’s the Speaker’s problem: It isn’t exactly true that any effort to increase revenue has been defeated. While the deal would enact no tax increases up front, it leaves the door open to increased revenues through the special commission. (See the top 10 government showdowns.)

The plan would cut more than $900 billion in spending right away and raise the debt ceiling through January. Next, it would call for a vote on a balanced budget amendment to the constitution, which would likely fail in the Senate. Third, it would set up a commission of six Republicans and six Democrats to find an additional $1.5 trillion in savings. Democrats will surely push for revenue increases in the third stage, though they will be limited on the amount they can raise from individual income because they’ll be working off the “current law” baseline, which assumes the expiration of the Bush tax cuts. The most likely source of new revenue will be ending corporate tax breaks and subsidies.

The real tough sell to Republicans is the enforcement mechanism on the commission. If the committee were to deadlock, $1.2 trillion in across-the-board cuts over a 10-year period would automatically kick in. Democrats have their own problems selling their members on a 2% or more cut to Medicare providers in the event of a deadlock, but Medicare benefits as well as Medicaid and Social Security would remain untouched. Republicans hate that fully half of the $1.5 trillion in triggered cuts would come out of the Pentagon’s budget. When confronted with the choice of defense cuts or increased revenues, President George H. W. Bush chose to raise taxes, a move that arguably cost him reelection.

Still, Democrats argue that Republicans got almost everything they wanted in the end. When Obama started debt ceiling negotiations, he asked for a three-to-one ratio of cuts to revenue increases. By the end of his “grand bargain” talks with Speaker Boehner, that ratio was five-to-one. Unless Democrats can win some revenue increases through the commission, the deal will end up as 100% cuts and no tax hikes. In addition, Republicans will get a vote on a balanced budget amendment in the Senate.

Despite those gains, there remains a real question as to whether Boehner can convince enough of his House Republican flock to vote for the deal. He failed to get 216 Republicans to vote for his version of this compromise on Thurdsay, and that plan was significantly more conservative than the one under consideration now. House Democrats aren’t wild about the compromise either. “We all may not support it, or none of us may be able to support it,” House Minority Leader Nancy Pelosi told reporters Sunday evening, though her staff was quick to clarify that she is keeping an open mind.

The final outcome may be something right out the deficit reduction deal struck by President Ronald Reagan and House Speaker Tip O’Neill in the 1980s. That vote split the House exactly; both sides delivered 109 votes. It’ll be bad news for Boehner if he can’t get a majority of his own conference – 121 votes – and worse if he can’t get 108 to make up for half of the 216 votes required for passage. Boehner’s future would be in doubt if the vote comes down to something like the second bank bailout vote in 2008, when 172 Democrats and 91 Republicans swallowed the bitter medicine together. If the bill fails altogether, as the first bank bailout did when Boehner didn’t deliver the number of votes he promised, it could be the final nail in the Speaker’s coffin. Pelosi’s case to reclaim the House will grow stronger with every vote Boehner fails to muster.

Conversely, the one clear winner from all this seems to be President Obama. If the bill passes, he can now claim the mantle of fiscal conservatism – a surefire defense to ubiquitous Republican accusations of socialism and big government. If the debt ceiling were breached and the economy tanked, he likely would’ve borne the greatest political price. But by swooping in and making the deal at the last minute, Obama can say he saved the day. Of course, giving Obama a win is the last thing staunch conservatives in the House want to do. With the clock running out to raise the debt ceiling and a flurry of meetings scheduled for Monday, no less than the U.S. economy and the political fortunes of Washington’s top leaders are now in their hands.

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